Banking Trends Are Positive, but Stocks Are Pricey
Key themes from the Barclays Global Financial Services Conference include continued efforts to improve operating efficiency and increasing capital returns to shareholders.
Many of the U.S. banks we cover presented at the Barclays Global Financial Services Conference over the past three days, giving updated takes on guidance and views on the industry and the U.S. economy. Overall, not much changed, with only slight adjustments to guidance levels. Despite many positive industry trends, we don’t see many compelling valuations within the U.S. banking sector. Best idea Wells Fargo (WFC) is the main standout, trading at a 23% discount to our fair value estimate, while many of our regionals, despite our assumption that a tax cut will take place, still trade at or even above our fair value estimates.
Several key themes emerged during the conference, including the consistency of low deposit betas, continued efforts to improve operating efficiency, increasing capital returns to shareholders, and marginally slower loan growth for the third quarter. The universal U.S. banks also mentioned a likely reduction in third-quarter trading revenue. We believe investors should not overreact to these short declines in loan growth or trading revenue. As for trading, volatility may have remained low over the summer, but we don’t expect markets to remain calm forever. At the same time, a tight rein on expenses across the industry in recent years should pay off once volatility returns. For loan growth, once uncertainty abates surrounding key proposals in Washington, such as those related to tax reform, we believe commercial investment and mergers and acquisitions should pick up more.
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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.